I had the pleasure of attending most of a two-day seminar on Contesting Markets organised by the Markets and Society Research Network.
The symposium was a collection of academics highly critical of market theory in all its forms, most crucially of the reliance on "competition" as a policy tool. The range of views was great, from Fred Block who talked about the social construction of the mechanisms by which markets "cascade" - rightly pointing out that the theory of market clearing fails because markets will always have "stickiness" made up of social resistance. There were interesting divergences on labor markets, reproductive biology markets and weather futures markets.
One of the features was a rejection of the mathematical approach of neo-classical economics. This is a point at which I deviate (and in a long ago post on Galbraith I noted this). The issue is not with the use of maths, but the use of the wrong maths. Too much of neo-classical economics rests on assumptions about economic behaviour that primarily exist to make differential calculus work - not because they in any way reflect reality. In this they find comfort in Friedman's fanciful methodology of positive economics.
I really believe that all the factors from market power, expectation, institutions and rules can be modelled - it is just that you end up with complex and potentially chaotic systems.
However, for me a big question remains whether policy makers really understand this stuff. A discussion point is whether the policy makers understand the theory or merely the policy rhetoric of competition, efficiency and market failure. If you do as Lynne Chester has and examine actually existing markets you'd have to conclude that they don't get the theory.
One participant thought they had to understand the theory to buy the rhetoric. But I pointed out, following an excellent presentation from Evan Jones, that "competition" isn't defined in policy. Indeed the definition of competition used in law is a high court definition that refers to competition as rivalry and admits of the concept of seeking to damage competitors. This definition therefore admits into "competition" the kind of "strategic interaction" that the neo-classical model assumes does not exist.
Ultimately the problem is, as Jones has pointed out previously is with law firms who not only represent the big end of town but are the big end of town.